Posted: 2/25/2009
Recently, TSCB noted two new mortgage fees implemented by Fannie Mae affecting condo buyers — a .75% condo add on fee and a 1.75% additional fee for investors — both applicable to loans with a loan-to-value rate greater than 75%.
Well, there’s more. Effective March 1, 2009, Fannie Mae is implementing condo guideline changes “in light of the current condo market and the need to mitigate risk on condo loans”. Some of these changes may affect a buyer’s ability to obtain conventional condo loans for new and established condos.
A condo project is “established” if 90% of the units have been sold, is complete and the HOA has been turned over to the owners. A condo project is “new” if less than 90% have been sold, is not completed, is subject to phasing or if the HOA has not been turned over to unit owners.
Overview of Fannie Mae condo guideline changes:
- For new construction and newly converted condo developments, 70% of the units must be pre-sold (closed or under contract). This is being increased from 51%.
- No more than 15% of a condo project units can be more than 30 days delinquent on HOA dues. This is an existing guideline that is now being applied to new condo projects. The calculation was also changed from being 15% of HOA fee payments to 15% of total units.
- Fidelity insurance will be required for condos with 20 or more units, ensuring that homeowner association funds are protected. Presently, this requirement applies to new projects and is now being extended to include established condos.
- A requirement that borrowers must now obtain a condo-owners insurance policy unless the master policy provides interior unit coverage; coverage may not be less than 20% of the assessed value. A condo-owners policy, known as an HO-6 policy, covers personal property, personal liability, and the physical unit from the studs and in. Many policies also include special assessment coverage or the option to include a special assessment coverage rider.
- No more than 10% of a project can be owned by a single entity.
- No more than 20% of a project can consist of non-residential space.
- The homeowners association must have at least 10% of its budgeted income designated for replacement reserves and adequate funds budgeted for the insurance deductible.
According to a Fannie Mae, the guidelines can be modified for condo projects on a case-by-case basis. Therefore, these guidelines may not apply to all condo projects.
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